CAL and EVA report drop in profits

DIFFICULT YEAR:While the airlines are expecting a better second quarter, analysts warn that earnings will still be down year-on-year as high crude oil prices take a toll

By Amy Su / Staff Reporter

The nation’s two largest airlines expect their second-quarter net profits to improve from the previous quarter on the back of rising demand for their cargo and passenger services after high crude oil prices eroded profits in the -January-March period, company executives said yesterday.

The airlines said demand on US and European routes is rising, as is cargo business to Japan to aid the post-disaster reconstruction.

China Airlines Ltd (CAL, 中華航空) and EVA Airways Corp (EVA, 長榮航空) posted substantial declines in net profits for the first quarter of this year from a year earlier as costs rose on hikes in oil prices, dwindling demand after Japan’s March 11 earthquake and political turmoil in Libya, company officials said.

CAL reported first-quarter losses of NT$379.09 million (US$13.18 million), compared with a profit of NT$2.56 billion, or NT$0.55 per share, a year earlier, a company financial statement showed.

EVA posted a 78 percent decline in net income for the first quarter of this year to NT$269.32 million, or NT$0.09 per share, from NT$1.25 billion, or NT$0.42 per share, a year earlier.

However, the two air carriers were optimistic about their -business prospects this quarter on the back of growing demand for passenger and cargo services.

“Japan’s recovery pace is fast and its post-disaster reconstruction will bring additional demand for transporting goods and materials, further driving up the company’s cargo revenue,” Liu said by telephone.

Overall, Liu said: “CAL has a good chance to return to the black this quarter.”

EVA spokesman Nieh Kuo-wei (聶國維) shared Liu’s optimism.

“Passenger business will be up in the second quarter, especially in June, as overseas students and their parents increase demand on US and European routes during the commencement season,” Nieh said by telephone.

Individual travel for Chinese tourists, likely to be introduced next month, would be another driver for second-quarter passenger revenue, Nieh said.

However, continued high oil prices are still the main concern for the airline sector, as fuel costs account for 40 percent to 45 percent of an air carrier’s overall expenses, analysts said.

Citigroup analyst Timothy Chen said in a report on Wednesday last week that EVA could only break even if oil prices remain at about US$120 per barrel.

Even if the airlines become profitable in the second half of this year, their earnings would be down substantially from a year earlier on high oil prices, an analyst at Capital Securities Corp (群益證券) said in a report on Tuesday last week.

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